Monster Beverage Under Fire

San Francisco City Attorney Dennis Herrera sued Monster Beverage Corp. in California state court Monday, accusing the company of marketing its caffeinated energy drinks to children despite alleged health risks.

The lawsuit represents the latest effort by an increasing number of city, state and federal authorities to investigate or restrict the selling and marketing of energy drinks—which have quickly become an estimated $10 billion industry in the U.S. The drinks promise a kick from caffeine and other ingredients such as taurine and ginseng.

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The suit also escalates a legal tussle between San Francisco and Monster, which sued the city last week in federal court. The Corona, Calif., company, the leading seller of energy drinks in the U.S. by volume, has accused Mr. Herrera of overstepping his authority by trying to force it to curb marketing and serving sizes, among other measures.

In Monday's lawsuit, filed in San Francisco, Mr. Herrera alleged Monster was violating California law by marketing its drinks to children as young as six years old, despite warnings from public-health authorities that highly caffeinated products can cause brain seizures and cardiac arrests among adolescents.

"Monster Energy is unique among energy drink makers for the extent to which it targets children and youth in its marketing, despite the known risks its products pose to young people's health and safety," Mr. Herrera said Monday.

Michael Sitrick, a Monster spokesman, said the beverage company intends to "vigorously defend" itself against the lawsuit. "Mr. Herrera appears to be motivated by publicity rather than fact or science," Mr. Sitrick said.

Monster said it doesn't market to children and that its energy drinks are safe, with a typical can of its 16-ounce energy drink containing 160 milligrams of caffeine, or 10 mg per ounce, which is roughly half the caffeine per ounce of Starbucks coffee.

Monster says its products fall under federal laws and the regulatory authority of the Food and Drug Administration.

The FDA doesn't set caffeine limits for energy drinks. The agency currently sets caffeine limits only on "cola-like'' beverages, a regulation that has been in place since the 1950s and caps caffeine at 6 milligrams per ounce.

That could change. Michael Taylor, the FDA's deputy commissioner for foods, said last week the "proliferation'' of caffeinated foods and beverages ranging from energy drinks to gum and oatmeal "is very disturbing'' and that the agency might consider limiting how much caffeine can be added to other products.

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The FDA said last November it was investigating whether energy drinks posed "significant risks'' when consumed in excess or by vulnerable groups, including young people or those with pre-existing cardiac or other conditions.

A group of 18 scientists and public health professionals wrote a letter to the FDA in March, saying it was "particularly concerned'' about the health effects of energy drinks on children and adolescents because of their lower body mass and lower tolerance to caffeine. The American Academy of Pediatrics says energy drinks "have no place in the diet of children and adolescents.''

In Monday's lawsuit, Mr. Herrera alleged Monster "aggressively'' markets its products to youth by sponsoring youth sports tournaments and "prominently'' featuring profiles of youth ranging in age from 6 to 17 on its Monster Army social-networking website.

"Monster also targets children and teenagers by promoting a 'lifestyle' that features extreme sports, music, gaming, military themes and scantily-clad 'Monster Girls,''' the lawsuit alleges.

Mr. Herrera's staff says it found examples of more than a dozen people younger than 13 years old with their profiles posted on the Monster Army website as recently as last week. Monster says its "Army" members must be over age 13 to post on the website without parental consent and that "less than a small fraction of 1%" of website participants are younger than 13.

Monster says the labels on its energy drinks already caution the beverage is "not recommended for children, pregnant women or people sensitive to caffeine."

Energy drinks sales in the U.S. rose 12% to reach roughly $10 billion in retail terms in 2012, according to Beverage Digest. Monster had 36.8% of the U.S. retail market for energy drinks last year by volume, ahead of Austria's Red Bull GmbH, with 29.9%, and Las Vegas-based Rockstar Inc., with 17.5%, according to the trade publication and data service.

Monster's net sales rose 21% to $2.06 billion last year. But growth has slowed in recent months, with some analysts attributing it at least partly to heightened scrutiny of energy drinks. Monster's share price also has been weighed down over the past year by regulatory concerns.

Mr. Herrera isn't the first public official to take aim at energy drinks and how they are marketed. New York state Attorney General Eric T. Schneiderman last year subpoenaed Monster; PepsiCo Inc., maker of AMP energy drinks; and Living Essentials LLC, maker of 5-hour Energy shots. That investigation is continuing, according to a person familiar with the matter.

An FTC spokeswoman declined to say Monday if the agency was looking into how such drinks are marketed.

Suffolk County's legislature on New York's Long Island voted in March to prohibit the marketing of energy drinks to minors and banned the sale of such "stimulant'' drinks to minors in county parks.

In Chicago, Alderman Edward Burke introduced legislation earlier this year that would ban the sale of energy drinks that contain more than 180 milligrams of caffeine per container and include taurine or guarana. The city's health committee held a hearing on the proposal in March, but no date has been set for a follow-up hearing.

The American Beverage Association, an umbrella group for drink makers, recommends energy drinks not be marketed to children younger than 12 years of age. It also says the drinks shouldn't be sold or marketed in schools through grade 12.

Monster Beverage shares were down 2.2%, to $56.18, in 4 p.m. trading Monday on the Nasdaq Stock Market. The stock flirted with $80 in 2012, before being dragged down by rising regulatory concerns after Mr. Schneiderman in July of that year launched the investigation into the marketing and health claims of the energy-drink category. The company has a current market capitalization of about $9.3 billion.

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